Results from the latest edition of Deloitte’s quarterly CFO Signals survey found CFOs have lowered their expectations for revenue, earnings, capital spending and dividend growth, but raised them for wages and salaries.
Deloitte conducted the survey between August 2 and 14, and respondents included 96 CFOs, primarily U.S.-based, with a few in Canada and Mexico. Seventy-two percent of the participants lead finance at public companies; 28% lead privately held companies.
Taking a wide view of economic conditions, most CFOs (54%) remain positive, but that percentage has fallen; 62% held a positive outlook last quarter.
The same holds true for company performance; 66% of CFOs are more optimistic about their financial prospects, down from 75% last quarter. CFOs also reported lower expectations for revenue, earnings, capital spending and dividend growth.
"What the data tells us here is the trends we've been seeing over the last six quarters are continuing," Steve Gallucci, National Managing Partner of Deloitte's U.S. CFO practice told CFO Dive Wednesday. "Although one area of pullback is how CFOs perceive the economy."
Internally, the executives cited talent and labor shortages, which are widespread, alongside retention, strategy execution and return-to-work logistics as their biggest risks. These are followed by rising operating costs and a daunting cybersecurity outlook.
Externally, the continued impacts of COVID-19 and its variants were named the top risk, followed by inflation, regulation and supply chain constraints.
Nearly half of the respondents said supply chain disruptions have increased their costs by at least 5%, and three out of five said shortages and delays have already reduced their sales this year.
"When you think about what's happened over the last 18 months, [like] the shutdown of ports, and the bottlenecks around products getting to manufacturing facilities and the like, that's really caused some fairly significant disruption across several sectors," Gallucci said. "Clearly, from the CFO's perspective, that's had a top-line impact on costs, and inventories have been affected by companies' inability to get enough product into the pipeline."
Despite an increasingly unpredictable future and the concerns they cited, CFOs’ appetite for risk has rebounded significantly, with two-thirds saying now is a good time to take greater risks. In particular, nearly all (92%) said debt financing is attractive, and 55% say the same for equity financing.
This quarter, CFOs’ growth expectations declined in all metrics. Revenue growth expectations declined to 8.5% from 9.6% last quarter, while earnings growth dropped to 12.6% from 13.6%, capital spending to 8.8% from 12.4% and dividend growth to 3.8% from 4%.
But two areas remain robust: growth expectations for domestic hiring and domestic wages and salaries, both of which saw a modest increase.
"The pandemic has presented a lot of options for employees," Gallucci said. "Pivoting to a hybrid work model has caused some disruption in [companies'] talent bases, and they're seeing turnover start to creep up a bit."
Looking ahead, nearly half of CFOs (46%) expect to achieve significant company growth from mergers and acquisitions (M&A) over the next three years.
"It's telling that 52% of CFOs said M&A will fuel upwards of 50% of their company's growth over the next two years," Gallucci said. "We think the M&A market will remain front and center in the CFO world."